Saturday, December 13, 2008

So Much for the Santa Claus Rally

Those of you who have been following Guido’s trading on the right will have seen it jump substantially last week. Guido was short Dow and FTSE futures which collapsed after the auto-bailout deal in Washington failed midweek, closed all the positions before the yanks could cobble together some compromise. Booked profits for the trading for the last three months are 97% – Mrs Fawkes hinted that perhaps going back to full-time trading might be more lucrative than blogging. Perhaps, however this was performance off a small amount of capital, the Value-at-Risk was sometimes leveraged 20 times, it was pure risk money and Guido got lucky.

Basically the trades were shorting the pound versus the euro, selling rallies in the Dow and FTSE, quickly covering after significant drops. Somehow Guido managed to lose money twice trading from the long side on Gold futures just before retracements rather than just buying and holding. Sir Michael White sneered at Guido for recommending buying gold as we shift towards Mugabonomics and the Bank of England sets the printing presses rolling. Gold is the safest refuge and the cost of carry with interest rates tending towards zero is ever more favourable to passive holders of the metal.

Sterling investors who bought gold at the beginning of the year have seen it rise 28% from £424 to £544 an ounce. If in 2009 we see “quantitative easing” (printing money), holding gold will be insurance as much as an investment. If you have apocalyptic fears, holding physical gold coins is reassuring.

Won’t be keeping a diary of trades on the blog next year, because this is a politics blog and some (not all) readers find it boring and/or self indulgent. Not bothered about being self indulgent (it is a personal blog) but being boring won’t do.

Thursday, December 11, 2008

German Finance Minister Mocks Brown’s "Great Rescue Plan"

“All this will do is raise Britain’s debt to a level that will take a whole generation to work off” says Peer Steinbrück, the German finance minister. He isn’t a conservative finance minister from Merkel’s CDU, he is a Social Democrat member of the coalition government.

Worth reading the full interview in Newsweek. Devastating.

UPDATE : Ed Balls lying on Sky this morning basically says Peer doesn’t really mean it and is only saying it because of “internal coalition politics”. Which makes absolutely no sense. Total Balls.

Tuesday, December 9, 2008

+++ US Treasury Bills Trade at Negative Yields +++

For the first time in history, not even in 1929, $27 billion of three-month bills were sold at a discount rate of 0.005% and are now trading at negative yields. Investors will get back less than they pay for them for the security of actually being repaid. That shows real fear in the markets.

Unfortunately British Gilts are not considered such a safe bet…

Monday, December 8, 2008

Can Someone Explain the Bank Bail-Out?

Guido has flu and so does baby Ms Fawkes, who made her unhappiness abundantly clear between 2 a.m. and 4 a.m. this morning. So perhaps it is the grogginess that is hindering Guido’s ability to comprehend Gordon’s financial genius. The £600 billion bank bail out plan to restore liquidity to the credit markets includes the following elements:
  • H.M. Treasury has guaranteed British inter-bank lending (charging a hefty penalty risk premium adding to the cost of inter-bank lending).
  • The Treasury has demanded preference shares from the banks with, from memory, a 12% interest charge to be paid by the banks.
  • The Treasury has also encouraged the FSA to double the requirement for banks to hold government gilts in their reserves, yielding somewhat less than a paltry 4%.
  • The Treasury is demanding that banks lend at mortgage rates closer to base rates.
Is Guido missing something? How can the banks make a profit and recapitalise if the government has both hiked their cost of capital and reduced the returns on their reserves, as well as exhorting them to reduce their margins on mortgage lending? How does this plan add up?

Thursday, December 4, 2008

House Prices Fell 16% Y-o-Y, Car Sales Down 36.8% November

The pound is at a record low against the euro this morning (1.15). Today we’ll probably see the Bank of England cut base rates to 2%. Alistair Darling says we’ll be out of recession by the second half of next year – which seems to Guido very, very unlikely. The government says it will be underwriting the entire mortgage business, not just through quasi-nationalisation of banks, but by guaranteeing defaulting borrowers for 2 years. This is not a recipe for sound money. At this rate we will soon have to rename the currency the Great British Krona…

Tuesday, December 2, 2008

The Run on the Pound

Yesterday sterling had the biggest drop it has had since it was forced out of the ERM on White Wednesday in 1992. The pound was down 4% at $1.48 and it fell 2.9% against the euro and tumbled 4.8% versus the yen. It just goes to show how bad Britain’s situation is that this isn’t even front page news on every paper.

UPDATE : This just in from a co-conspirator:

Hello Guido,
I’ve been perusing the great work of fiction that is Gordy’s oops, the Chancellor’s growth forecasts, and on page 1 of Annex A: The Economy we have this bullet-pointed gem:

‘UK GDP growth of 3/4 % for 2008 with the economy contracting in the second half of the year’

Now, when the chancellor stood up at the dispatch box, three quarters of 2008 GDP growth were known:

Q1 0.3%
Q2 0%
Q3 -0.5%

In order to hit the forecast 0.75%, the economy has to grow at feisty 1% in the fourth quarter. Has the Chancellor been outside recently?

Is it any wonder that foreign investors have lost confidence in Britain, Gordon has missed his GDP growth forecasts every year since 2006. The Chancellor makes fantasy forecasts that no one believes, least of all HM Treasury, does he really expect GDP to surge this quarter?

UPDATE II : Some querying via email of how the GDP quarterly statistics are precisely computed by someone who seems to know what they are talking about; “There are lies, damned lies and statistics”.

Monday, December 1, 2008

+++ Pound Crashes Below $1.50 +++

Bad News, Good News

With a load of economic data out this morning the pound is off 1% against the euro, the Purchasing Managers Index is down sharply, mortgage lending is down 70% year on year, credit card borrowing is up, PWC have research out saying Briton’s are now personally £1.5 trillion in debt – yet Gordon wants them to spend, spend, spend more.

It is not all bad news though, Guido is short the FTSE….

Friday, November 28, 2008

+++ Taxpayer Loses £2 Billion in RBS First Day of Ownership +++

Wednesday, November 26, 2008

+++ MFI & Woolies Bust +++

Bankruptcy was not entirely unexpected in the case of these two ailing retailers. Despite Mandelson pleading with Woolies’ bankers into the early hours of this morning they pulled the plug regardless. Tuppence off prices won’t make much difference for them.

Keen readers will notice the change to the portfolio on the right hand side for the first time in a month. Guido has just shorted FTSE futures and Dow futures. Combination of bad local news and a sense that there is a mood of bailout fatigue in the U.S. There is usually a “Santa Claus rally” in the markets at year end. Not sure Santa is going to come this year…


Seen Elsewhere

Stuart Broad Right, Peston Broadly Wrong | Ryan Bourne
The 38 Seats in England Yet to Select a Tory Candidate | ConHome
Labour and Green Ecofascism | Matthew Walsh
Burnham Shows Why Labour Can’t Be Trusted | Speccie
Why Online Voting is a Crap Idea | Ballot Box
Time We Showed Super Rich Some Love | Alice Thomson
We Need True Popular Capitalism | Maurice Saatchi
Labour’s Winning Hand | Sebastian Shakespeare
We Defend Labour’s Record | John Hutton and Alan Milburn
100 Tories to Rebel on Plain Packs | Telegraph
May 2015 and the Art of Political Betting | MAY2015


Rising Stars
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Alan Milburn says Labour’s scaremongering campaign for an unreformed NHS will not win election…

“It would be a fatal mistake, in my view, for Labour to go into this election looking as though it is the party that would better resource the National Health Service but not necessarily put its foot to the floor when it comes to reforming. Look, reforms are not easy, but the Labour Party is not a conservative party. It should be about moving things forward not preserving them in aspic. You have got a pale imitation actually of the 1992 general election campaign, and maybe it will have the same outcome. I don’t know.”


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